Markets Bet on Fed Rate Cuts to 2% by 2027 as Sentiment Shifts

Key Facts

1Traders in US futures and options markets have flipped from pricing rate hikes in 2027 to betting on continued cuts.

2The Dec 2026 to Dec 2027 SOFR spread inverted to -8 basis points, signaling a prolonged easing cycle.

3Open interest in SOFR Dec 98.00 calls soared above 400,000, indicating bets on the policy rate falling to 2%.

Traders in US futures and options markets have aggressively pivoted their outlook, moving from pricing rate hikes in 2027 to betting on a prolonged easing cycle. The SOFR spread between December 2026 and December 2027 has inverted to -8 basis points, signaling market conviction in a deeper cutting path. Open interest in SOFR December 98.00 calls has surged past 400,000 contracts, indicating significant bets that the Federal Reserve's policy rate will drop to 2%. This shift marks a sharp reversal from previous expectations, as concerns over persistent inflation are being replaced by the perceived need for long-term monetary support. The emergence of such a dovish trajectory is expected to weigh on Treasury yields and the US Dollar while providing a tailwind for Gold and fixed-income assets.